Oops! Venture Capital Rebirth Delayed by Third Blown Deadline

The Securities and Exchange Commission now says it needs at least another week before it can detail its proposal to rescind longstanding prohibitions against startups advertising that they are seeking investors.

The SEC had been scheduled to consider the changes at its open meeting today following a delay last week. Prior to missing this week's deadline and last week's deadline, both self imposed, the commission missed a July 4 deadline spelled out in the JOBS Act, a recently approved piece of legislation that, among various other securities rules, loosens restrictions on how startups can raise money from venture capital funds and other wealthy "accredited investors." The commission is now slated to discuss the so-called general solicitation rules at a meeting Aug. 29.

Allowing startups to broadly advertise their fundraising will fuel a more diverse ecosystem of investors beyond Silicon Valley's elite fraternity of venture capitalist and "super angels," as we wrote earlier this week, and could also make it easier for tech ventures outside the Valley to raise funds. But the SEC needs to clarify exactly what sorts of advertising will be allowed and when the ban on advertising will be lifted. It must proceed carefully: A previous deregulation of startup advertising, from 1992 to 1999, was blamed for an explosion in "pump and dump" scams.

The SEC's progress on the advertising issue is also being closely monitored by a wide array of startups. Some simply want to know when the SEC will be done with the advertising rules and ready to move on to writing rules governing a separate type of investment activity legalized in the JOBS Act, crowdfunding, in which entrepreneurs raise money from a large number of unaccredited investors.

"Our concern comes down to 'Will the SEC hit its target dates?'" Sherwood Neiss of the Crowdfunding Professional Association said Monday.

The delays may not be over. This week, the SEC had been scheduled to "consider rules" around startup advertising. On Aug. 29 it will now "consider whether to propose rules" around startup advertising. In the meantime, the old guard on Silicon Valley's Sand Hill Road remains firmly on top.